Skift Take

Flight Centre Travel Group is a global travel agency so it should be able to handle Air New Zealand and Qantas getting around to slashing travel agent commissions two decades after Delta Air Lines kicked off the trend in the U.S. It won't be without some pain, however.

Two decades after U.S. airlines eliminated base commissions for travel agencies, Australia’s Flight Centre Travel Group, an online/offline leisure and corporate travel agency, and others in the region are grappling with the issue.

Here are six takeaways from Flight Centre’s first half of fiscal year 2022 financial report, which it delivered Thursday.

1. Flight Centre Said It Can Offset the Airline Commission Cuts … But Can It?

Flight Centre said airline base commissions to travel agents stood at about 3.7 percent on average pre-Covid. But now that Air New Zealand and Qantas cut commissions to around 1 percent or so on long-haul flights and zero on short-haul flights, those average commissions have fallen around a point or two globally.

Melanie Waters-Ryan, Flight Centre’s CEO of Leisure, told analysts the company can offset those commission slashes by working with the airlines on private fares and selling ancillary services, such as seats and bags, where margins can be 40-50 percent. In addition, she said, margins on leisure travel have been rising.

2. Competitor ‘Hibernations’ Could Be Advantageous

Waters-Ryan said the company’s Flight Centre leisure brand, which is 40 years old, has been growing in Australia, South Africa and New Zealand.

A company presentation deck referred to the “ongoing hibernation of some competitors,” including the failure of rival STA Travel, as an opportunity. Some 15 percent of travel agents in Australia left the industry during Covid, and Flight Centre Travel Group’s Student Universe has taken advantage of STA Travel going under.

3. Travel Agents Are Still Important in Australia

Travel agents in Australia are still very much part of the trip-planning fabric.

“Firstly, we have a structurally lower cost base, which is permanent,” Waters-Ryan said, speaking of the Group’s advantages in leisure travel. “We have also retained a strong and highly accessible shop network. I keep reminding everyone, I think in Australia, 90 percent of customers are still within a 10-kilometer physical access of a shop.”

4. Business Travel Was 60 Percent of Sales But It Won’t Come Back 100 Percent

Flight Centre’s FCM brand services big corporate accounts such as Spotify, AXA, JTI, KPMG, Procter & Gamble, Electronic Arts, Sony, Verizon, BASF, and business travel accounted for nearly 60 percent of the Group’s total sales in the last six months of calendar year 2021.

Relying on industry consensus, including estimates from airlines and the Global Business Travel Association, Chris Galanty, the Group’s CEO of corporate, said business travel will likely rebound to 60 to 75 percent of pre-Covid levels in 2023.

Although he thinks that estimate may be a tad low, Galanty is bearish on a full recovery of business travel.

“I don’t think corporate travel will ever come back, certainly not in the short- to medium-term future to 100 percent,” Galanty said. “I think it will be lower.”

He argued that large corporate accounts are looking for alternatives to the big three travel management companies, namely American Express Global Business Travel, CWT and BCD, and there is also an opportunity to win smaller accounts now that Amex acquired Expedia Group’s Egencia.

Flight Centre targets smaller business accounts with a handful of regional brands.

5. China Was a Bright Spot

In China, where most of the business travel is domestic, the FCM brand has done relatively well, Galanty said. Sales have reached 45 percent of pre-Covid levels. Although China, Hong Kong, Singapore and Malaysia still have some stringent Covid travel restrictions in place, the expectation is that they will be lifted in two or three months, the company said.

6. Still Losing Money

Flight Centre Travel Group’s earnings before interest, taxes and depreciation loss widened in the first half of fiscal 2022 (July to December 2021) to Australian $184 million (U.S. $132 million) compared with Australian $156 million (U.S. $112 million) a year earlier. The year-earlier loss, however, was reduced by Australian $65 million (U.S. $46 million) in government subsidies. Revenue rose Australian $156 million (U.S. $112 million) in the first half of fiscal 2022 compared with the pre-Covid period.

The Group’s investor presentation was relatively upbeat. It said the company sees “positive signs re-emerging in key regions of the Americas, UK, Europe & Australia after the omicron downturn between December & January – strongest signs of return to normalcy since start of pandemic.”

The Group said it targets its Americas and Europe, Middle East and Africa regions returning to profitability in the third quarter, although it didn’t provide overall fiscal year 2022 guidance because of “the lack of visibility” into the “timeframe and extent of the recovery, the impact of future variants, removal of remaining restrictions, and instability in Ukraine.”

 

Free Daily Newsletter

Sign up for the most popular Skift daily download of news, happening, and headlines in the travel world

Tags: air new zealand, airlines, ancillary services, australia, business travel, china, commissions, consolidation, corporate travel, earnings, fcm, flight centre, qantas, sta travel, student travel, student universe

Photo credit: A Flight Centre shop, or travel agency. The company said 15 percent of travel agents in Australia left the industry during Covid. Flight Centre Travel Group